Intermodal Rail Freight: A Role for Federal Funding?

As Congress considers reauthorization of federal highway and transit programs and funding, currently provided by the Transportation Equity Act for the 21st Century (TEA-21, P.L. 105-178), one issue being discussed is the role of freight rail in the nation's transportation system. Economic and trade growth, along with growing congestion on certain parts of the nation's interstate highway system, has focused attention on the ability of the railroads to divert more truck traffic to rail. However, the railroads are currently operating at close to capacity. Many rail analysts question whether the railroads are making sufficient profit to add adequate capacity to their intermodal network. This raises the issue of whether the government could or should assist the railroads in expanding the capacity of their infrastructure. And if so, how a funding program could be arranged.

A number of concerns have been raised about federal contributions for the development of freight rail facilities. Some contend that an aid program is unnecessary, others object to providing public aid for privately owned infrastructure, and some warn that public aid will do more harm than good. Still others question the potential of intermodal rail to alleviate highway congestion.

On the other side of the issue, a number of public benefits can be associated with improving freight rail infrastructure. One view is that public aid should be directed to those rail or rail-related projects which improve passenger mobility. Projects that mitigate grade-crossing delays or upgrade passenger rail corridors are primary examples. Another popularly held assumption is that public aid should be provided because there are energy, safety, and environmental benefits to rail transportation. In this view, these external benefits are justifiably not likely reflected in the rail industry's investment decisions and thus warrant government involvement. There are also those who support public aid for rail projects for the purpose of enhancing freight mobility. This view holds that freight railroads are so critical to the national economy that upgrading and expanding their infrastructure is a national concern.

Freight railroads primarily finance projects themselves with almost no government assistance. The railroads have been investing heavily in their service capacity, particularly with respect to intermodal terminals. The question is if their pace of investment is sufficient to meet anticipated demand. Federal programs have funded some rail related projects, but relative to the other modes in modern times, funding is limited. There is a growing sense by some parties that public support for intermodal rail projects must become more common if growing congestion and inefficiencies in the nation's transportation system are to be corrected.

One proposal is to create a rail trust fund similar to the highway, inland waterway, and aviation trust funds to provide a regular funding stream. Others suggest that existing federal programs could be modified to make it easier for freight rail projects to qualify for federal monies. A related issue is how projects deserving public support could be identified. This report will be updated as warranted.